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Why have Taylor Wimpey shares reached pandemic highs in March?

The Taylor Wimpey share price saw a peak of 184.80p on 18 March 2021, reaching an all-time high for the Covid-19 pandemic. Why is market sentiment increasingly bullish for one of the UK’s biggest housebuilding stocks?

  • All-time high for Covid-19 pandemic at 184.80p
  • Full-year profit plunges by 68% in 2020
  • Dividend set to be reinstated at 4.14p per share
  • £826 million invested in new sites since the end of Q2 2020

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Did the 2021 budget boost Taylor Wimpey share price?

One of the main factors behind the Taylor Wimpey (TW.L) share price reaching its ‘pandemic high’ was the measures announced in the UK Budget 2021. The extension of the stamp duty holiday for an additional six months is expected to encourage a resurgence in activity and prices in the UK housing market.

The chancellor’s new Mortgage Guarantee Scheme was a considerable boon for UK housebuilders, opening up the housing market to first-time buyers seeking new builds with just 5% deposits. These mortgages will be underpinned by government guarantees, giving lenders increased confidence.

What have we learned from the full-year results?

Furthermore, Taylor Wimpey published its full-year (FY) results at the beginning of the month, which confirmed a decline in profits from £835.9 million in 2019, to £264.4 million in 2020. The results revealed that house completions for new builds fell sharply in the first half (H1) of 2020 as a result of site closures and the nationwide lockdown due to Covid-19. However, build capacity had been restored to almost 2019 levels by H2 2020.

In total, throughout last year, Taylor Wimpey constructed 9799 new builds, which was down 39% year-onyear (YoY). However, looking forward, there are encouraging figures for investors in the Taylor Wimpey share price to consider. Its order book remains solid, with 10685 new builds slated for construction as of 31 December 2020, despite the onset of Brexit. Additionally, the average selling price for new builds has risen YoY from £269,000 to £288,000, which may have a positive impact on the company's bottom line.

Moreover, Taylor Wimpey’s balance sheet appears secure, with net cash of £719.4 million in the bank. It’s this safety net that has seen the property developer resume its share dividend, with a final dividend of 4.14p per share, amounting to £151 million in total. This is subject to shareholder approval at the next annual general meeting (AGM) in April 2021.

Will a spending spree on new sites give investors’ confidence?

Investors may be emboldened by Taylor Wimpey’s not-insignificant land-buying moves, that have taken place since the end of quarter two (Q2) of 2020. As of 9 November 2020, it had spent £826 million on 70 new sites, totalling 14,500 new plots. The housebuilder confirmed it also has plans to ‘invest significantly’ in additional sites in the coming year.

Analysts at Berenberg have also sought to increase their target price for Taylor Wimpey shares from £1.80 to £2.10. It described the UK developer as the ‘second-best performer’ in the sector, with the German bank maintaining its ‘buy’ recommendation for the Taylor Wimpey share price.

The company hopes to be able to restore its operating margin of 21% to 22%, and ‘accelerate (its) volume growth from 2023 onwards’.

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Footnotes

1Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK
2Deal three times or more in the previous month to qualify for our best rate

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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